Oct 28, 2011, 7:23 am EDT
Is Europe’s crisis over? The short answer is “no,” Europe’s crisis is not over. But Thursday’s news was a major step in the right direction.
Europe’s leaders finally acknowledged what we all already knew: Greece is insolvent and cannot pay its outstanding debts. The country has reached the point where higher taxes and lower spending cannot balance the books; they instead cause the economy to contract, tax revenues to fall further, and the debt-to-GDP ratio to rise. Recent estimates had Greece’s debt-to-GDP ratio at nearly 170% of GDP, and with the country’s yawning budget deficit, that number was getting higher every month. It’s a vicious, ugly cycle with no other way out.
Greece had reached the point where its debt load was unsustainable and default was inevitable. The Europeans wisely chose to negotiate a large “voluntary” haircut of 50 percent between Greece and its bondholders rather than run the risk that Greece unilaterally decide to stop paying. It was not a popular move, and Europe’s leaders will no doubt take political heat for it from their electorates. But it was the only sensible move to make. Read
Oct 25, 2011, 3:05 pm EDT
China is taking some knocks lately over fears that a “hard landing” is in the cards for this booming emerging market. Admittedly, it all sounds a little overblown as China’s industrial output surged 13.8% in September over 2010 numbers — hardly indicative of an economic crisis. And although auto sales in China are lagging, they still are growing in what now is the largest vehicle market in the world after American car buying slowed to a crawl during the recession. And, of course, Macau casino stocks are booming as disposable income among wealthy Chinese continues to be in ample supply.
But those who watch manufacturing and consumer trends in China are buying into the head-fake. The fact is almost all production and consumption trends in this nation are subject to massive risks of Chinese banking and lending — a so-called “shadow banking” system that is unregulated, corrupt and wide-reaching in this communist nation.
Consider this: According to a study issued by the People’s Bank of China in 2010, non-banking-sector lending has expanded to anywhere between $1 trillion and $10 trillion — as much as 40% of the total lending activities of China’s economy. These loans come with exorbitant interest rates, ranging from 14% to as much as 70%. Read